EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The G-2 US-China Tax and Stimulus Focus on Solar and Electric Cars

Leading commentators are increasingly focused on the importance of a
developing informal G-2 relationship between the U.S and China. During the
recent G-20 summit, President Obama agreed to meet later on in the year with
Chinese Premier Wen Jiabo. It is more than coincidental that both economic
powerhouses are moving quickly on major tax and stimulus initiatives involving
solar and electric cars. This article explains the major initiatives
simultaneously being under taken by both countries. Since both of our economies
are so intertwined these large initiatives will undoubtedly compliment and
conflict with each other.

China and U.S. Solar Programs

The two major solar categories are Solar P.V., used to generate electricity
and solar thermal, used to heat hot water. Due to capacity increases, the price
of solar materials is falling drastically throughout the world

China Solar

On March 26th, 2009, China announced major new stimulus legislation focused
on solar P.V. initiative that is very product specific.

Because China is the world’s largest solar panel manufacturer this
program is designed to support the sale of their own manufacturing products
into the domestic Chinese economy. Solar panel installation is labor intensive
and this good way to employ legions of new workers entering the Chinese
economy. China has long history of utilizing solar thermal so it is
understandable why the stimulus focus is on P.V.

According to Solar Buzz¹, some of the specific details of the new
Chinese program, along with our comments, are as follows:

“A fixed subsidy will be granted for both urban BIPV applications and
for photovoltaic building systems in rural and remote areas. Technical
standards will apply to their installation. The installed capacity for
individual projects should not be less than 50 kWp.”

BIPV means ‘building integrated photovoltaics,’ which is solar
incorporated into other building products, typically roofs.

“PV systems must include at least 16% efficiency for monocrystalline
silicon photovoltaic products, at least 14% efficiency for multicrystalline
silicon photovoltaic products, and at least 6% efficiency for amorphous silicon
photovoltaic products.” These are relatively low solar panel efficiency
targets that will drive large project volume. Like the new U.S. stimulus
initiatives, there is a major focus on government building efficiency levels as
follows:

“Priority will be given to panels used as architectural components
and integrated with grid connected buildings, most notably for schools,
hospitals, government agencies and other public buildings.”

U.S. Solar Tax Credit Incentives

The U.S. solar program involves a combination of tax credits and grants for
both purchasers and solar product manufactures. For purchasers the incentive is
either a 30% tax credit or a 30% grant for broad range of both solar P.V and
solar thermal. For manufacturers the grants are limited to specific initiatives
approved by the Department of Energy.

Purchaser Tax Credit Incentives

Pursuant to the Emergency Economic Stabilization act of 2008 the 30%
commercial solar tax credit was extended for eight years through December 31st,
2016. This unprecedented 8 year extension gives property owners ample time to
incorporate solar into long term facilities plans. As the price of solar P.V.
continues to decline economic paybacks period are steadily improving so
facilities owners can do their analysis now and be ready to act once they reach
an economic return that meets their criteria. Pursuant to the American Recovery
and Reinvestment Act of 2009 solar purchasers can obtain now obtain a non
taxable 30% solar grant that is economically equivalent to the 30% solar tax
credit. The grant will benefit those companies in tax loss position or who are
unsure of their tax position.

China and U.S. Electric Car Programs

Both China and the U.S have recently announced major initiatives for
electric car purchases. At the time of the article was being written both
countries are evaluating tax credit programs to stimulate overall new auto
purchases. Both countries have enacted incentives to encourage electric car
purchases by government agencies.

China Electric Car Program

China has recently announced a program to convert China into one of the
leading producers of hybrids and all electric vehicles within three years with
the goal of making it into the world leader in electric cars and buses.

Subsidies of up to $8,800 are being offered to taxi fleets and local
government authorities in 13 Chinese cities for each hybrid or electric car
they purchase. The state electric grid has been ordered to set up electric
charging stations in 13 Chinese cities for each hybrid or all electric cars
they purchase.² China is well situated for short run electric car usage
since the density of their huge cities makes for short commutes. Government R
& D subsidies for electric cars are rapidly increasing. As this article was
going to press the Chinese were studying a new car purchase tax incentive
program.

U.S. Electric Car Program

Section 30D of the American Recovery and Investment Act provides for minimum
tax credit of $2,500 per qualifying electric vehicle for both taxpayers and
dealerships selling to tax exempt agencies. The maximum credit can range from
$7,500 to $15,000 depending on gross vehicle weight in combination with
kilowatt battery capacity in excess of four kilowatt hours. Automobile dealers
will only be able to take the tax exempt/government purchaser credit if they
make full disclosure to the tax exempt agency. This provision is clearly
intended to result in an economic transfer resulting in a lower price to the
tax exempt agency.

U.S. Clunker Tax Credit Proposal

As this article was going to press the U.S. was considering what is commonly
called a clunker trade in automobile tax credit proposal. With a clunker
program taxpayers would receive a tax credit for trading in an car that is
older than particular model year. One current proposal is to offer a $5,000
credit for trading in a car older than a 2001 model. This author questions the
value of that program since the average American drives about 15,000 miles a
year and cars more than at 7 years old already have 100,000 miles on them. A
meaningful program would allow later model trade ins to accelerate the purchase
by the millions of Americans who have deferred purchase in the last two years
compared to their normal replacement cycle.

DOE Green Car Loan Program

As of January 15th 2009 the DOE had received 70 applications for loans
announced under its Advanced Auto loan program3, which aims to help
companies seeking to build the next generation of cleaner vehicles. This
program authorizes up to 25 billion in loans and was created under Section 136
of the Energy Independence and Security Act of 2007. The DOE has stated that
eligibility will be based on locating manufacturing facilities and doing
integration work in the U.S. The DOE has also said that it will consider
whether the recipient has reasonable costs associated with building or
retooling a manufacturing facility. Some of the disclosed applicants include
electric car start ups Tesla Motors, Integrity Automotive and ZAP and battery
makers Ener 1 and A123 Systems. Ener 1 applied for $480 million in loans and
A123 which plans to build a manufacturing plant in Michigan applied for $1.84
billion in loans

Complimenting and Competition

Solar

The U.S. presents a major solar P.V. market opportunity and U.S incentives
should support a emerging U.S. market while also continuing to support Chinese
manufacturing sector bolstered by new Chinese domestic market demand. Panel
installation is labor intensive and both countries need to improve internal job
creation. The U.S. has more suitable PV roof space than any country and U.S.
buyers will favor U.S. manufacturers as suppliers if the technology and quality
is better and the pricing is competitive. Also U.S purchasers are much more
comfortable with warranty promises from U.S. based manufacturers subject to
U.S. legal jurisdiction..

Electric Automobiles

The current major barrier to the widespread introduction of electric cars is
low cost long distance battery technology. With the anticipated new electric
car volumes from both countries the required battery investment technology is
beginning to occur. A new Chinese electric car manufacturing center means the
U.S. manufacturers may not be able to leverage their large electric car and
battery technology investments over as many potential purchasers as they may
have anticipated.

Conclusion

The new large government sponsored investments by the economic G-2 in solar
and electric cars is going to have a major global economic impact. It is two
soon to predict outcomes but when the two largest economic players in the world
do the essentially the same thing the end results will be accelerated. Within
the politics of the U.S., the grant allocation manufacturing process will be
interesting since California is both our countries largest potential solar
market and the leading center for automotive design.